George Osborne may have lost the taxpayer money on Lloyds but he is still correct

It should be remembered that the taxpayer’s rescue of the banks was never
about making a profit

With the state's holding in Lloyds cut from 39pc to 33pc, George Osborne is on track to have disposed of the entire holding before the next electionPhoto: Getty Images

By Telegraph staff

6:00AM GMT 18 Dec 2013

In business, the concept of the “loss leader” is well-known: sometimes, in order to make some money, you must be prepared to take an upfront loss.

The Government appears to have understood this when, three months ago, it authorised the first sale since the financial crisis of a portion of the shares the taxpayer acquired through the bail-out of Lloyds Banking Group.

The thinking is straightforward: if you have a very large stake in a very large bank, the only way to stand any chance of getting out of the holding at anything close to a profit is through a series of sales that could at first see the Treasury recognising a loss.

George Osborne claimed the £3.2bn deal had made a “profit for the taxpayer”, but, as calculations by the National Audit Office show, the state has, in fact, recorded a £230m loss once debt funding costs are taken into account.

However, the NAO’s analysis is far from damning and points out the timing and execution of the sale could scarcely have been better. Indeed, in all probability, it puts the Government in a position to sell further tranches of shares at an even better price than the 75p it achieved in September.

The Chancellor may have been unwise to declare a profit prematurely, but the current sale strategy is the right one. With the state’s holding in Lloyds cut from 39pc to 33pc, Mr Osborne is on track to have disposed of the entire holding before the next election, with a sizeable portion of the shares probably offered to the public.

As seasoned bankers will have advised, any major disposal programme must be done in a series of carefully co-ordinated baby steps that do not leave investors feeling short-changed.

It should also be remembered that the taxpayer’s rescue of the banks was never about making a profit. The 2008 bail-out was about staving off the collapse of the British financial system and, in that context, a small loss or profit is a relatively trivial matter.

As Bumi exits, another vague cash shell enters

On the day the London market finally closed the curtain on Bumi, the ill-fated Indonesian mining venture, it was a little ironic that it welcomed Atlas Mara, Bob Diamond’s new Africa-focused venture, in almost the same breath.

Bumi, which has been the enfant terrible of the London market for some time, began life as Vallar in June 2010 when it raised $1.07bn (£657m). Atlas Mara, the newest kid on the block, began life on Tuesday when it raised $325m.

Despite the sizeable difference in the amount raised, they share a number of similarities. Both were brought to the market by a well-known London-based financier with a strong track record for creating value. Both were listed as cash shells with the notion of buying up assets in a specific industry overseas – in Vallar’s case, mining; in Atlas Mara’s, financial services. And both had compensation structures to reward the founders based on the assets brought in.

Vallar made a series of blunders, not least failing to carry out sufficient due diligence, and Atlas Mara insists that its partnership with Mara Group – which has eyes and ears on the ground across the sub-Saharan landscape – mean this will not be Bumi 2.0.

But there are more than enough similarities to sound caution.

Its British Virgin Islands domicile means that Atlas Mara’s shareholder register will not be made available and, given the problems created by companies such as Bumi, it is a surprise that the London market is welcoming such vague cash shells with open arms.